How to Find the Perfect Rental Property To Invest In

July 18, 2021

Rents are rising across the country. In June, the median price for a 1 bedroom rental was up nearly 5% YOY. And 2 bedroom prices rose even further, climbing almost 7% above June 2020 rents.

There’s never been a better time to be a landlord. But before you can start turning a profit in today’s insane market, you need to know how to find a rental property that’s, well, profitable.

We created this guide to help you do just that. Keep reading for our foolproof tips on how to buy the best rental property and some red flags to look out for.

What Makes the Perfect Rental Property?

There are three qualities of good rental properties. First, you want to choose a property that offers short-term profitability. Second, focus on properties that present low risk and the potential for long-term returns.

Here’s why.

Short-Term Profitability

Most property investors get into rental properties for the cash flow. Properties with good cash flow will earn you a profit as soon as tenants move in. And they’ll keep making you profit until that tenant moves out.

So, how do you ensure good cash flow? Pick a property where you can charge rent that’s higher than your expenses. Expenses include rental property mortgage rates, maintenance costs, management fees, and taxes.

Cheap rental property may seem like the best way to get good margins. But buying cheap isn’t always the best idea.

Newer properties may be more expensive, but they require fewer repairs and attract higher-quality tenants. That means you’ll spend less and make more in the short term.

Oh, and one more thing: don’t choose a fixer-upper for your rental. You’ll lose cash flow while you renovate. For most first-time property investors, the short-term losses aren’t worth the potential long-term gains.

Long-Term Returns

Monthly rent isn’t the only way you can make money off rental properties. If the property value increases over time, you can take out the equity and re-invest it in a new rental. Or you can sell your property for a profit.

Finding properties that offer long-term gains is a bit trickier. You need to have an ear on your local market and understand which neighborhoods offer the most potential for long-term growth.

Low Risk

Risk is inherent in any investment, and rental properties are no different. But there are strategies you can use to ensure your rental is as low risk as possible.

For example, vacancy rates and tenant quality are two of the most significant risk factors in investment properties.

A vacant rental will stall your cash flow. High neighborhood vacancies drive a rent price race to the bottom as landlords try to attract tenants. Worse, high vacancies could affect your investment’s appreciation.

And here’s the thing: tenant quality is directly related to the vacancy rate. The lower quality of your tenants, the more likely you’ll have vacancies. This is why you should always envision your ideal tenant to inform your search.

How to Find Rental Property to Attract Your Ideal Tenant

Choosing a property that offers good cash flow, low risk, and the potential for long-term returns is easier said than done. But understanding what high-quality tenants are looking for in a rental can help.

Renters consistently report that price and location are critical to their search. And they’re least likely to compromise on these factors. So, here’s how to find the perfect rental property for the right price in the best location.

Look for Construction

Construction usually means growth. If you see cranes at work nearby, odds are the property is in a high-growth location. Future developments can drive up rental prices while also increasing home value.

But not all construction is good construction. For example, if a new commercial development is going up, the rental price and value of your investment could plummet.

Check the Local Job Market

32% of renters move to get closer to work. That’s why choosing homes in a growing or already established job market is always a good bet.

Here’s another tip: if a major company moves to your area, workers will flock there. Buying up rentals in the area is a surefire way to fill vacancies fast, attract high-quality tenants, and watch your investment grow.

Amenities Are a Must

15% of renters say they’re willing to compromise on price if the place comes with the right amenities. Attractive rental amenities include:

  • Hardwood flooring
  • Updated appliances
  • Proximity to public transport

Parks are another amenity that can increase rental prices. This is especially true for pet owners and families, which make up 19% and 13% of renters, respectively.

Identify Good School Districts

If you’re investing in single-family homes or multi-family dwellings, you need to choose properties in good school districts. Schools are one of the most important deciding factors for these renters.

At the same time, avoid buying property near colleges and universities. You’ll be more likely to attract student renters who come with higher vacancy rates. Plus, you won’t have to deal with volatile seasonality when students go home for holidays and the summer.

Consider Property Taxes

The price of the property itself is important when narrowing down your search. But that’s not the only factor that affects how much you can profit off monthly rent. Property taxes are also critical.

The lower the property taxes, the more room you have to profit. In a competitive market, you can attract more tenants with lower rents when you have more wiggle room with property taxes.

Need a Property Manager for Your New Delaware Rental?

In this guide on how to find rental property, we’ve explained what makes the perfect investment. And we’ve explained how attracting high-quality tenants takes good locations and affordable rents. The rest is up to you!

Have you recently acquired a rental property in Delaware and need help managing it? Contact Delaware Realty Management today to find out how we can make your life easier.

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